Private Business Valuation - The Important Components

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johnnyblazini

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Can we make a list of things to know from this section?
I’ll start us off:
- CCM (Capitalized Cash Flow Method) is exactly the same as finding NPV using the FCFF or FCFE methods.
 
Discounts for lack of control and lack of marketability are multiplicative:
1-(1-DLOC)x(1-DLOM) = total discount
 
- EEM (Excess Earnings Method) is the same as RI method of valuation, but we may value working capital necessary returns and fixed assets necessary returns at two different rates.
 
I know it’s obvious BUT don’t forget to apply the proper discount rate to the proper cash flow.
If you discount FCFF you will arrive at an Enterprise Value (same with EBITDA multiple and stuff), so you have to account for the debt (and cash) in order to come up with the right value of the EQUITY.
 
smileygladhands Wrote:
——————————————————-
> DLOC can be derived from a control premium as
> follows:
>
> 1 -1/control premium
Same with DLOM I assume?
 
DLOC = 1- {1/(1+control premium)}
It is 1+ control premium, not 1/control premium
Total discount = 1-{[1-dloc][1-dlom]}
Yes formulas for valuing based on GPCM and Excess Earnings method. Not complicated.
 
+Discounted cash flow:
Free cash flow method (2 stage cash flow valuation)
Capitalized cash flow method (1 stage cash flow valuation)
Excess earning (just use dif discount rates for dif parts of the firm: fixed asset, working capital and finally, intangible asset)
+ Comparable method:
Guideline public company: use data from public company
Guideline transaction method: use data from public and private
Guideline prior transaction: use historical data of the target
DLOM, DLOC are used to adjust values between controlling interest and non controlling interest.
 
Hii everyone,
I have just started to learn business valuation, can anyone here who breifly explain these things.
Thanks Regards…..
 
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